Kibble Ltd. contributed some specialized equipment to receive a 45% interest in a joint venture, Lenard Inc. The equipment has a fair value of $640,000 and a carrying value of $300,000. Kibble also received $ 100,000 in cash from Lenard Inc. The other party to the joint venture, Farlinger Ltd, contributed cash of $660,000 for the 55% interest. It is deemed that the transaction lacks commercial substance. Based on the above, the gain to be recognized immediately by Kibble is:

Question

Quizplus · Accepted Answer

The gain recognized immediately by Kibble is calculated based on the proportion of the interest not retained. Kibble retains a 45% interest, so it recognizes a gain on the 55% interest not retained. The total gain on the equipment is the difference between its fair value and carrying value ($640,000 - $300,000 = $340,000). The gain recognized is 55% of $340,000, which is $187,000. However, since Kibble also received $100,000 in cash, which is considered part of the gain, the immediate gain recognized is $187,000 - $100,000 = $87,000. This option was not provided, indicating a mistake in the calculation or the interpretation of the question as presented. The correct approach involves recognizing the gain proportionate to the share not retained in the joint venture, but without the exact details or options matching this calculation, the provided answer choices do not align with the correct calculation methodology.